From the September 2005 issue of Investment Advisor • Subscribe!

THE GLUCK REPORT, Part I: Second Act

A Techfi pioneer returns with new portfolio management software

Rob Major, I'm sorry. I apologize for underestimating you. You know a lot more about portfolio management software than I thought you did, and your new portfolio accounting system for RIAs--AssetBook--is likely to be a success.

Who is Rob Major and why am I apologizing to him? Major was a cofounder of Techfi, a portfolio management software (PMS) company. Back in December 1998, he asked me to review his new PMS program, Portfolio 2000. I did, and said it was a breakthrough product. Portfolio 2000, which was purchased by Advent Software in June 2002 for $23 million, went on to become a great story with an inglorious if controversial end. However, I always attributed the company's success to Matt Abar, the maverick programmer of the product, and I never gave much credit to Major, who was in charge of sales and marketing and owned 15% of the company.

I now realize that I misjudged Major because he has once again built a PMS product that could become a good solution for RIAs. This time, it's a Web-based system, but more important, he vows he won't make the same mistakes he made with Portfolio 2000. He promises he won't take more clients than he can handle, won't release new products or upgrades until they've been carefully tested, and won't chase after enterprise deals with B/Ds if they endanger his focus on RIAs.

Please understand that Major Technology Resources' (MTR) new PMS system, AssetBook, is not a breakthrough product like Portfolio 2000. AssetBook is a good product, but it is one more in a growing field of PMS applications targeting RIAs. In the last couple of years, several new RIA PMS products have emerged, including PowerAdvisor, Investigo, and Interactive Advisory Services, breaking the lock held by Schwab and Advent on the small-RIA PMS market. What's interesting about Major's new product, however, is that having lived through the startup of Portfolio 2000, he is building a small business with modest goals in mind.

"This is going to be an RIA product," says Major. "My goal is not to create a company that puts its software on the desktop of every broker out there. I want to build a product for RIAs." Major says he plans to add three to six RIA clients a month over the next 12 months and five to 10 a month during the following 12 months. He sees no more than a few hundred advisors on his system after five years.

While the allure of enterprise deals with B/Ds tempts almost all small technology vendors serving the independent advisor market, Major promises his main focus will always be RIAs. He will license his Web-based application to B/Ds, but they must run it on their own servers and service reps themselves. Major says he will not spread his meager resources too thin by trying to host the application for B/Ds and do all of the rep downloads and reconciling.

"This company belongs to me and the product belongs to me," says the 36-year-old Major. "I've already sold out and my goal now is to build a company that I'm proud of and have clients that want to write a check to us. It's not a short-term deal for me."

Major's Big Adventure

Major wants to create another PMS program, but to do it his way this time. While Techfi was a great payday--$2 million after taxes--Major says he differed with Matt Abar on the direction of the company when it began to grow rapidly. In the months leading up to Techfi's acquisition, Major's and Abar's relationship became strained.

Major and Abar had become friends in 1993 while working at Financial Computer Support Inc., which makes the dbCAMS PMS system. Abar left for a programming job at Denver-based Investment Advisory Network, a separate account manager platform, and Major followed him about a year later. Then Major left IAN to work for an advisory firm in Texas.

In the summer of 1998, Abar quit his job at IAN, locked himself in a room for three months, and emerged with the skeleton of a PMS program he called Portfolio 2000. He called Major, whose easy going style and country-boy face made a stark contrast to Abar, who wore thick glasses, was overweight, and possessed an intensity matching his intelligence. Major accepted Abar's offer to be "Mr. Outside" and become a partner in Techfi, which was running out of Abar's townhouse.

Not long after, Major called me and I started covering little upstart Techfi's challenge to Advent and Schwab. I met Abar and was impressed, and he was great copy. Here was this 28-year-old kid who was a great programmer and understood portfolio accounting. He had dropped out of college because it was boring to him. Now he was CEO of a tiny startup that could disrupt plans by industry giants to control advisor desktops. Portfolio 2000 ran on SQL server software, an open database, which would free advisors to access their portfolio data and use it in their contact management software, analytics programs, and other applications, and it posed a direct challenge to the closed database systems offered by Advent Axys and Schwab Centerpiece (now called PortfolioCenter). I loved this story

In the three years that followed, the story got better, as Portfolio 2000 turned the PMS software business on its head. Techfi created an affordable Web-based application, called AdvisorMart, launched a simple contact management add-on module for its desktop version, and was also developing a financial planning module. It attracted 500 advisor clients and its Web-based version was gaining traction with independent broker/dealers before StatementOne had established dominance.

All the while, I credited Abar. I'm not sorry about that. Abar was indeed a visionary and could implement his ideas. What I did not see was that Rob Major also had a vision, and I never did give him credit for it, or see his passion for creating a business that serves RIAs.

A Roller Coaster Ride

Major says he does not blame Abar for wanting to sell the company to Advent. Techfi was struggling with client service issues because it grew so fast and Advent promised to pour money into TechFi's products. Of course, it has not turned out that way. In June, Advent stopped supporting the desktop version of Techfi's Portfolio 2000, Web-based AdvisorMart is operating with a skeleton crew, and Advent's continued support is in doubt. As it turned out, Advent bought Techfi to put the company out of business and keep a fast-growing challenger from gaining further traction, which has left Major wounded.

"The demise of the software is like a stab to my gut," says Major. He says his plan is to leverage his experience in Techfi to create a niche company that downloads and reconciles advisor account data for small RIAs.

"What I went through at Techfi was a roller coaster ride," says Major. "I don't want to relive all of it, but I still really enjoy working with RIAs."

Major says he thought about going into the horse breeding business with his wife, but was drawn back to the PMS software business because he enjoys it. "Almost every day, I get to implement a solution or make technology work in firms," he says. "We can take a process like rebalancing, which takes a lot of RIAs a week or so to do, and we can make that into a 90-minute process. I get huge satisfaction from that."

Mixed Reviews, but Impressive

Major has his work cut out for him. The ratings he received from our advisors, who saw the software in a 90-minute Web demo, were mixed. Of the 10 advisors asked to rate AssetBook on a scale of one to 10, with 10 being the best rating, two gave it a nine, one gave it an eight, two a seven, one a six, three gave it a five, and one gave it just a three. While these are not great scores, even the advisors who gave AssetBook a low rating were hopeful. For instance, look at comments from two of the panelists who rated AssetBook a five.

"This is a good base for an expanding system," says Sandy Derato, who runs a dbCAMS service bureau and has worked in the PMS business for two decades. "Information is clearly displayed and Rob seems willing to add features that were suggested."

"I was impressed with the amount of features that have been developed by such a small team," says Aaron Spahr, who evaluates technology used by advisors affiliated with Securities America. "The product seems crude now but could be a serious contender with a year or two of continuing enhancements."

Not Quite There Yet

The immediate problem is that AssetBook is missing some important features. For instance, the software could not do anything but average tax lot accounting, could not run a realized gain and loss report, and while you can set your target allocation to an individual security or fund, you cannot set your target allocation for an asset class. Despite all this, I see Major succeeding.

By September 30, he says, AssetBook will be capable of running a realized gain and loss report. He says that by then it will also be capable of first-in-first-out, last-in-first-out, highest-cost-, lowest-cost-, and actual-cost-lot accounting and tax management. So you'll be able to specify which lots you want to sell and perform all of the other important tax lot management tasks that PMS programs must handle in order to serve RIAs properly.

AssetBook already provides some capabilities that other software does not--like alerts. When you have a large slug of cash come into a sweep account, AssetBook can alert you to it. You can also track a client's performance against his goals, not just against stock and bond benchmarks. AssetBook can download from just six institutions, however: Schwab, Fidelity, Waterhouse, DST, Pershing, and Rydex. You can expect that to change in coming months as more interfaces will be written.

Major says that an integrated trading module, TradeBook, will be beta tested in the first quarter of 2006. It will allow for automatic rebalancing of portfolios, provide alerts on which positions should be rebalanced, and permit exclusion of specific securities or portfolios from a global rebalance of all portfolios (which is handy for portfolios with concentrated positions on which you do not want to take gains).

A Charge for Service, Not the Software

One thing that will be different from other PMS applications is that Major will not charge anything for his software. What Major Technology Resources is charging for is a service--downloading and reconciling; the software, Major says, is free. Pricing is based on the number of accounts (not portfolios, not households) serviced. It is $24 per account per year. However, if you have more than 50 securities in an account, then it's another $12 per year for the next 50 securities in that account.

MTR, which is located in McHenry, Maryland, is also converting advisors from their current PMS system at $100 per hour. While the cost of conversion varies depending on the number of accounts, the number of years of transaction history, the number of custodians, and the amount of trading, Major says most RIAs should expect to spend between $3,000 and $5,000 to convert.

I asked Major to provide pricing for three typical RIAs. For a sole practitioner with $20 million under management spread among 50 clients and 150 accounts, who needs two custodial data interfaces and has four years of data history, the conversion and implementation cost would be about $2,500 and the annual fee would be $3,600. For an RIA with three advisors, $95 million under management, spread among 145 clients with 350 accounts at four custodians, and with some transaction data dating back as far as the mid-1980s, conversion and implementation would cost about $5,000, and the annual fee would be $8,400. Finally, for an RIA firm with seven staffers who access the system, 219 clients, 540 accounts, $214 million under management at four custodians, and 11 years of transaction history, conversion and implementation would cost about $8,000, and the annual fee would be $12,960.

The pricing, if it is sustainable, is pretty low. For instance, it considerably less expensive than licensing Schwab PortfolioCenter to run on your desktop and outsourcing download and reconciliation tasks to a service bureau. (That software and service combination is equivalent to what MTR and AssetBook provide.) Even if you don't buy a full license of PortfolioCenter and choose to utilize new service bureau licensing fees recently announced by Schwab for PortfolioCenter, AssetBook is still likely to be considerably less expensive. It is also likely to be less expensive than licensing Advent Axys and paying a service bureau to handle downloads and reconciliation.

"I would seriously consider using this product in a few months when the bugs are ironed out," says Richard Del Monte, a financial planner in Alamo, California, who uses Advent.

"AssetBook has taken the best features of Advent and Schwab PortfolioCenter and incorporated them into this package," says Catherine Jacobs, a planner who runs Outsource Opportunities in Shreveport, Louisiana, a service bureau for outsourcing planning and PMS data management.

After seeing a Web demo of AssetBook, George Taylor of Temenos Inc. in Watertown, Connecticut, told Major he would become a beta tester. "It is still a work in progress, but I like the idea of using a hosted solution," Taylor says, "and believe Major has found a business model that is scalable but also can work with a small number of clients."

The business risks are what an advisor should probably be concerned with. Major has just two employees in addition to himself. Ken Park, a programmer who previously worked at Techfi and dbCAMS, is singlehandedly coding the entire application. In addition, there is an administrative assistant, who is downloading and reconciling for six beta testers. "It takes him about an hour a day to do all six clients," says Major. He plans on outsourcing the servicing of accounts to service bureaus, and he will consider adding employees to handle download and reconciliation only if it makes economic sense to do so.

Although Rob Major has some work to do over the next year or two to make AssetBook a viable competitor, I think there's a good chance he can overcome the hurdles. I am guessing he will make AssetBook a successful niche PMS provider over the next five years to a few hundred RIAs that want a high level of service. I underestimated Rob Major once before, but I won't make that mistake again.

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (www.advisorproducts.com), which creates client newsletters and Web sites for advisors. Advisor Products may compete or do business with companies mentioned in this column. He can be reached at agluck@advisorproducts.com.

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